Where Do We Go Now?
2020 will undoubtedly go down in the history books, but it will also “go down” in quite a few Harvard Case Studies. COVID-19 has had a polarizing effect on the business world, as, despite the employment shocks and GDP declines, it was a catalyst for growth in e-commerce. In 2020, e-commerce penetration rose at the same rate in eight weeks as it did in the previous 10 years combined, peaking at over 20% of all retail sales.
Now, a question lingers about the lasting impact of that growth, and what defines the next wave of e-commerce.
Despite the momentum in e-commerce today, 2020 started with quite a different narrative. In January 2020, D2C was proclaimed “dead.” D2C -an acronym for “Direct to Consumer”- symbolized more than the sales model it abbreviated. The term is more commonly used to describe an era of brands that raised over $3 billion dollars in venture capital from 2012–2019, selling their products online and “cutting out the middleman”. The truth is most of those brands are omnichannel and comparing a razor subscription company like Harry’s to a mattress in a box company like Casper, by just calling them both “D2C” is pretty misleading. Yet, a narrative was forming:
On January 22nd, Glossy, in an article titled, ‘Allbirds is an outlier’: Why VC-backed direct-to-consumer brands are hitting a wall,” shared that “DTC brands are struggling to meet those lofty expectations” of venture investment.
On March 9th, Marker’s article on D2C brands titled, “Why all the Warby Parker Clones are Imploding”, said the Casper IPO showed “the raw numbers under the hood of a DTC” and “it turns out it’s extremely difficult to actually make the economics work.”
By March 2020 though, the tide suddenly changed. A global pandemic forced the world into quarantine and pushed shoppers online, growing e-commerce sales on everything from health and beauty (+32.4%) to food and beverage (+58.5%). The increase in e-commerce activity wasn’t attributable just to existing online shoppers either. According to Kraft Heinz executive, Carlos Abrams-Rivera, “Since the crisis, as many as 33% of e-commerce shoppers are making purchases online for the first time.”
Kraft Heinz seized the opportunity and launched “Heinz to Home” — its first foray into D2C distribution. Kraft Heinz was not the only Fortune 100 business to embrace the changing landscape. Nike, for instance, broke off its relationship with Amazon, Dick’s, and others to focus on its own digital footprint. Nike Digital grew at an 83% growth rate during the pandemic and CEO John Donahoe argued, “digital is the ‘new normal’”. Today’s consumer is anchored around digital experiences and simply won’t revert back.
So, what does all of this mean as we look forward to 2021?
1. Deepened Relationships: As more brands own the relationship with customers, customers will expect more from brands. Jordan’s take of “Republicans buy sneakers too” will be outdated as customers seek to find brands that align with their values.
2. Linear Commerce: Mr. Beast’s hamburger joint is just the beginning of creators monetizing their audience through retail.
3. Social Shopping: In 2020, Instagram replaced its activity tab with a shopping tab. Instagram going from an ad powered social feed to a next-gen e-commerce marketplace shows a shift that will overlay e-commerce into all aspects of social media.
Technology and customer expectations have evolved over the last year. The “D2C model” is anything but “dead”, as even major brands have evolved their focus into direct sales via e-commerce. The brands that are best at fostering these relationships and meeting their customers wherever they want to be met will be the greatest success stories of 2021.